Politics

The government needs to help millennials save for the future

"Our research found that 24 per cent of young people were not saving at all"

January 23, 2017
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Recent figures from the Office for National Statistics examining incomes will do little to dampen claims of intergenerational inequality. According to the statistics, pensioners have seen their income grow by 13 per cent in the last decade. Working-age households, however, have seen a 1.2 per cent drop in real terms over the same period.

Of course, the contentious triple lock on pensions has guaranteed an annual pay rise for pensioners. However, a major driver of this increase has been private sources of income, such as annuities and investments, which have surpassed the 50 per cent mark for the first time.

But this also raises alarm bells about the younger generation’s ability to secure a comfortable retirement. This age group has been disproportionately hit by the economic difficulties of the past decade: the income of the average 22-30 year old remains 7 per cent lower than it was in 2008. While many perks for retirees, such as free bus passes and TV licences for over 75s, have been ring-fenced, the young has seen services geared towards them, such as maintenance grants at university, and some housing benefit, scrapped.

However, more worryingly, the level of individual saving among this age group is low. The latest report by financial services consultancy MRM, "Generation Austerity: Brexit and Beyond," considered the views of young people on a range of financial topics, and our research found that 24 per cent of young people were not saving at all. What is more, saving for retirement falls a long way down the list of financial priorities for this age group: just 5 per cent said it was their key concern.

It seems that young people have so many short-term pressures on their income that they are simply unable to put any of it away for the future. Nor is the political climate likely to help: 48 per cent of those surveyed expected to be financially worse off following Brexit. Unless something changes we can expect to see a sharp rise in the incidence of pensioner poverty, too.

The government has taken steps to reverse this. In 2017, pension auto-enrolment will hit the smallest firms, ensuring that all eligible employees are now building some form of nest egg unless they explicitly request otherwise. But with minimum contribution rates on these schemes currently at 1 per cent (albeit matched to the same amount by employers), they are simply not going to furnish savers with enough money for their post-work years.

The minimum contribution levels will rise modestly from next year, but not enough to seriously dent the growing savings deficit. Equally, as people see a larger amount disappearing from their pay packets, it is likely that opt-outs will rise exponentially. Similarly, the Lifetime ISA which is to be introduced for people under 40 provides a vehicle for saving but it fails to address the underlying issues of why young people are failing to save in the first place.

The government needs to come up with more innovative ways of encouraging saving. Perhaps the most important step it can take is to reduce the immediate pressures on young people’s incomes. House prices are out of control, rents are increasing faster than the average salary and job security remains low. There is a growing sense of discontent among the young about the way their interests appear to be passed over in favour of the older generation. The public was given a taste of this following the referendum result last year, but isolated pockets of protest, such as the tuition fee protests, have suggested the wind of change is shifting.

If measures to increase fairness for all age groups are not successful, then it may need to consider taking more drastic steps, such as reducing the number of age-related benefits for the old and increasing them for the young. Politically, this may be almost unthinkable, but the time has come for older people to accept a lower living standard to guarantee the future security of their children and grandchildren.